What is Concealment
Concealment is the omission of information which would affect the issuance or the rate of an insurance contract. If the insurer has no access to the nondisclosed information and that information is material to the decision-making process, the insurer can nullify the insurance contract. Should the provider learn of withheld information after the policyholder files a claim, the provider may refuse to pay out on the claims related to the concealed information.
BREAKING DOWN Concealment
Concealment applies any time an insured party fails to provide information to an insurer which could affect the terms of the policy. Note that this includes situations in which an insurance company does not ask a direct question about the information in question. Insurance policies generally lump concealment in with misrepresentation as a reason to void or alter a contract.
- Concealment technically consists of neglecting to provide information which, if presented, would change the terms of the policy
- Misrepresentation involves actively providing incorrect information to an insurance agent when purchasing a policy
Whether a policyholder is found to have misrepresented or concealed salient information purposely or by accident, insurers reserve the right to alter or void policies when they discover the omission or misrepresentation.
Smokers have a higher likelihood of encountering health issues than non-smokers, so many health, life, and disability insurance policies request information about whether or not a policyholder uses tobacco products or has a history of tobacco use. Suppose the policyholder was a regular smoker but quit ten years ago. If they marked no in answer to a question about having a history of smoking, they would be engaging in misrepresentation.
If instead, the application asked an open-ended question about a person’s health history and the individual failed to mention smoking, that would be concealment. In either case, if that person wound up dying of lung cancer or emphysema, the insurance company could deny payment of a life insurance claim if it discovered that individual’s history of smoking.
Concealment During Warranty
For an insurer to cancel a policy, the policy must include questions worded as conditional warranty statements. Insurance policies will often include such warranty statements. These questions will be vital to the decision to provide coverage and to the premium price. With these statements, the applicant clarifies that the answers they give are true and accurate. As an example, health insurance applicants may need to warrant that they do not have a terminal illness at the time of application.
Warrants may be affirmative or promissory.
- Affirmative warrants apply to the time of making the statement which is at the contract's creation. As an example, an insurer may ask an applicant if they have any traffic violations. The insurance provider may void the auto insurance policy if the applicant's answer is later found to be false. Since the untrue statement is given at the creation of the contract, the entire contract is void.
- Promissory warrants apply to events which will remain true in the future. As an example, an applicant may sign a promissory warrant that they will not begin to use tobacco products in the future. If they are later found to have started using these products, the insurer may cancel coverage or deny claims.